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Financial Crisis

A prudent man foresees evil and hides himself, but the simple pass on and are punished.

Proverbs 22:3

When I began writing this series back in early August, I did so as a response to a hard selloff in the stock market that followed the Fed’s decision at the end of July to lower interest rates.  As I noted in that first post in this series, I decided on the title “The Ongoing Financial Crisis of 2008” because it is my view that the market melt down that began in earnest in the fall of that year has never really gone away.

What occurred was that central banks took money printing into hyper-drive in late 2008 and early 2009 and managed to reflate the stock market bubble that had popped earlier in 2008.  I likened their actions to what the prophet Ezekiel called plastering walls with untempered mortar.  In other words, the Fed addressed the symptoms of the financial crisis, but not the cause of the crisis itself.

Eleven years later, this is still the case.  Nothing has been fixed.  Nothing has improved.  In fact, not only have things not improved, they have gotten far worse.

The 2008 crisis, what is sometimes called the Global Financial Crisis or the GFC, was a debt crisis.  There was simply more debt in the financial system than could be repaid.  So what was the response of the Fed and the federal government?  They conspired to create even more debt to solve a crisis caused by too much debt, as if somehow more of the same thing that caused the problem in the first place was also the solution!

To borrow an English proverb, this was the financial equivalent of bringing coals to Newcastle.

If a man is an alcoholic, you don’t cure hm by giving him another bottle of whiskey.  While another bottle may make him feel better for the moment, in the long run it will kill him.  Yet this is not so very different from what governments and central banks all over the world did in 2008.  They went on a spending and money printing spree, which managed to kick the can down the road but did nothing to solve the underlying problem.

As a result, while the economies of the United States and other Western nations have appeared to recover their health, the underlying fundamentals of those economies have grown steadily worse.  Just in America, our national debt has more than doubled since 2008 and now sits at $23 trillion.

Just to give you as sense of how fast debt is now piling up, it took the federal government from the founding of our country until 1982 to compile $1 trillion in debt.  Now, even mainstream sources are predicting that the annual deficit for fiscal year 2020 – this is the federal government’s fiscal year which began on October 1, 2019 and ends on September 30, 2020 – will be in excess of $1 trillion.  In other words, the federal government is adding the same nominal amount of debt in a single year that it previously took about 200 years to accrue.

Oddly, no one in Washington seems the least bit concerned about this.  Not the Democrats.  Not the Republicans.  No one except an odd fellow here and there such as Senator Rand Paul.

The Bible teaches us that debt is a burden.  At best, it is something that is to be used prudently and paid off timely.

Yet we all live with a debt-based financial system that, not only encourages debt, but actually requires debt to increase at a faster and faster pace just to keep the system from imploding.  This debt-based system of financial perdition was put in place in the United States with the passing of the Federal Reserve Act of 1913.  The Fed has been destroying not only the financial fabric of the nation, but its moral fabric as well, for over 100 years.

What is true of America is also the case with all other Western nations.

We have become enslaved by debt, and all the more with each passing year.

But just as untempered mortar quickly shows itself when exposed to a little rain, so too are the phony fixes put in place in 2008 beginning to come unglued.  In fact, this author has been amazed by how badly the financial system has deteriorated in the past three months he has been writing this series.

In just that short time, the Fed has, apparently on a permanent basis, started baling out the overnight repo market, twice cut interest rates and resumed Quantitative Easing (QE).  These are all various forms of money printing, which have the long-run effect of weakening the dollar resulting in higher prices and a lower standard of living.

And these are just the activities they openly acknowledge.  In the opinion of this author, the Fed rigs all financial markets 24/7 to provide the appearance of normalcy.  Stocks, bonds, real estate and oil are propped up, while precious metals – gold and silver – and crypto currencies are suppressed.

Bet even as the Fed rigs all markets and the government statisticians put out phony economic numbers designed to understate unemployment and inflation while overstating economic growth, there are some stats that cannot be rigged.

If one looks closely at the economic numbers that are put out, he will see that, all the economic cheer leading from the administration aside, there is almost no good economic news to be found.  Here is just a sample of recent headlines showing just how serious things are getting:

 

I could easily produce many more such headlines, but I trust the reader gets the point that, economically speaking, things aren’t all that great out there.  What’s even more remarkable is that these headlines are showing up at a time when the Fed has put the money printing pedal to the metal, intervening more aggressively in the market than at any time since the height of the 2008 crisis.

But while all that money printing has, apparently, not turned around the economy, the stock market is hitting new record highs.

So which is it?  Are we to believe, the stock market, the politicians and the Wall Street cheer leaders, who tell us everything is awesome, or the economic statistics which point to an oncoming recession?

For my part, I’ll trust the economic statistics.  Not, mind you, because I think economic statistics furnish us with knowledge.  Only the 66 books of the Bible do that.  No, it’s not that economic statistics are true that causes me to trust them.  Rather, it is that the monetary and fiscal policies pursued by central banks and Western governments – that is to say, money printing and deficit spending – are morally bankrupt and will, in the long-run, inevitably lead to financial bankruptcy as well.

All this naturally leads to the question, when will the next economic crisis hit?  My answer:  I don’t know.

In my opinion, the entire world economic system should have collapsed in 2008, but extraordinary action by the world’s central banks managed to resuscitate the system.  The financial system could easily have collapsed any time since then, but for the ongoing interventions – both public and secret – of central banks and governments ever since.

In short, we’ve all been living on borrowed time.

So how much more time are the masters of the universe able, or even willing, to buy?  I don’t know.

In my opinion, the apparent quickening pace of the slide into recession seems to indicate that the time before the next major financial crisis is relatively short.  That said, this author has been amazed at the ability of the establishment to maintain order as long as they have, so I would caution against any predictions that the wheels are definitely going to come off in the short-term.  Quite obviously, the Trump administration is doing everything in its power to maintain normalcy until after the November 2020 elections, which are just under a year away.  Can they hold things together until then?  We’ll see.

But regardless of the timing, it is my thesis that a major financial crisis is coming.  This will not be a garden variety recession.  It will be like the 2008 crisis, only worse, for the simple reason that the debt crisis has gotten worse.  Instead of dealing honestly with things in 2008, all we did was double down on the debt and kicked the can down the road.

But the point is coming when the can is no longer kickable.

That’s when things will get interesting.

And that’s the reason I’ve written this series on prepping.  The bill for our debts is coming due, and I have a great burden to alert my fellow Christians to this, so that they may, as the prudent man in Proverbs 22:3, foresee trouble coming and hide themselves.

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Financial Crisis

A prudent man foresees evil and hides himself, but the simple pass on and are punished.

    Proverbs 22:3

Dow hits record as stock market rally extends into 5th week” ran Monday’s AP headline. The same day, CNBC was even more ebullient, proclaiming “After Dow hits a record, analysts believe these stocks will lead the measure to its next milestone.” So what shall I say? The past three months I’ve been writing series talking about the ongoing financial crisis of 2008 and not only are the stock markets refusing to crash, they’re hitting records highs! To make matters worse, Yahoo reports that “Gold Suffers Worst Week in Three Years as Bulls Run for Cover.”

I guess I should just give up writing about financial matters, right?

Or maybe not.

You see, my thesis that the American economy has never recovered from the 2008 financial crisis is not based upon where the Dow or S&P averages close or the price action of gold and silver in a particular week.

As a Scripturalist, that is, as someone who believes that the Bible has a systematic monopoly on truth, I seek to analyze the markets and the overall economy, not by what the day’s headlines report, but by the propositions found in the Word of God.

When looked at in light of the Scriptures, we can see that what is hyped as the greatest economy ever is, in reality, a house built upon sand, which, in the opinion of this author, the coming economic storms will sweep away.

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Eccles_2

The Marriner S. Eccles Federal Reserve Board Building in Washington D.C.

“[T]he Fed has one power that is unique to it alone: it enables the creation of money out of thin air.”

    – Ron Paul, End The Fed

The welfare state, the warfare state and the loss of liberty.

Inflation, extreme income inequality and the destruction of the middle class.

Exploding federal debt, skyrocketing federal deficits and a financial system on the brink of failure.

What do all these things have in common? To one degree or another, they are all the effects of the Federal Reserve System, more commonly known as the Fed, America’s central bank.

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Financial Crisis
A prudent man foresees evil and hides himself, but the simple pass on and are punished.

    Proverbs 22:3

It’s been a couple weeks since my last posting in this series, but there certainly has been no break in the flow of events. In the intervening time since my last entry on 10/20/19, there have been several noteworthy bits of financial news. Of those, the most important was the announcement from the Fed this past Wednesday that they had decided to lower the Fed Funds rate another quarter point. This was the third time the Fed has lowered interest rates in the past three months.

Now any such decision by the Fed is important given the tremendous power of the Fed to push financial markets one way or the other. The big takeaway, however, is what this decision says about the Fed’s assessment of the economy. Despite all the propaganda from the administration saying the economy is doing great, the decision by a the Fed, or any other central bank, to lower interest rates is a tacit admission that the economy is not doing well. If the economy were doing well, the Fed would be raising rates, not reducing them.

When you add to the Fed’s lowering of interest rates the ongoing (permanent?) bailout of the overnight repo market and the restart of quantitative easing (i.e. money printing), it is obvious that the those closest to the situation think that the economy is seriously struggling.

One of the justifications put forward for lowering interest rates and money printing is that there is no price inflation. But even according the Consumer Price Index (CPI), the official measure of price inflation put out by the Bureau of Labor Statistics, the CPI-U (the broadest measure of inflation) rose 1.7% for the period September 2018 to September 2019. But beware of official government statistics! Over the years, the federal government has changed the way it measures inflation. And it should come as no surprise that the change has been in the direction lowering reported inflation.

Economist John Williams runs a website called Shadow Stats where he purports to calculate inflation the old fashioned way. His most recent calculations of the CPI-U tell a very different story from the figures put out by the Bureau of Labor Statistics (BLS). As you can see Williams most recent numbers come in a little higher than those of the BLS. According to Williams, the official method of calculating inflation used prior to 1990 shows inflation running at a more than 5% annual rate. If you look at this calculations with the pre-1980 method, the difference from the current official number is even more striking. The pre-1980 method of calculating inflation indicates that the current inflation rate is almost 10% annually!

If Williams is even close to being right, all this latest round of money printing by the Fed is like dumping gasoline on a raging fire, meaning we can expect to see much higher inflation numbers going forward.

Here’s a critical idea to keep in mind when talking about price inflation: Inflation is always and everywhere a monetary event. By this I mean that inflation is always the fault of money printing by central bankers. You can watch the evening news faithfully for decades on end and you will not hear this. Ditto with the financial channels such as CNBC and Fox Business. They will never tell you the simple reason for price inflation: Central bank money printing.

Why is this? It’s not an accidental oversight. The mainstream press is essentially the propaganda organ of the establishment, and central bank money printing is the financial black magic the establishment uses to increase its wealth and power at the expense of ordinary Americans. The powers that shouldn’t be – Washington politicians of both parties, Wall Street bankers and big shot investors together with a gaggle of academic theorists and news media talking heads – have a great scam going and do not want to let ordinary Americans know how badly their being ripped off and by whom.

To borrow a turn of phrase from Warren Buffett, “If you’ve been playing poker for half an hour at the table and you still don’t know who the patsy is, you’re the patsy.”

Ordinary Americans have been the patsies of the financial elite, of whom Warren Buffett is one, since the founding of the Fed over 100 years ago. The Fed’s inflation games are not only bad policy, they are also sinful in the eyes of God. The Bible unequivocally condemns “divers weights and measures” which God calls an “abomination” (see Proverbs 20:10 and 20:20 for example), which merchants of the day used to rip people off in much the same way central bankers, politicians and their super wealthy clients do today. It’s high time people woke of to this fact. End the Fed!

There’s much more that could be said about inflation and, Lord willing, I shall discuss this topic in greater depth in the future. For now, though, it is enough to know that 1) the cause of price inflation in money printing by the Fed, 2) the current method of measuring price inflation deliberately and significantly understates its true rate and 3) these facts are not reported in mainstream news outlets in order to keep the public in the dark about what is going on.

“So what,” you may ask, “does any of this inflation talk have to do with financial prepping?” Quite a lot, actually. If we understand that a falling dollar is the product of the Fed’s intentionally increasing the money supply too fast, we are positioned to understand ways of protecting ourselves against the ravages of price inflation.

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Financial Crisis

“In his book…A Christian View of Men and Things [Gordon] Clark comments that the growth of government is the greatest tragedy of the twentieth century.”

    – John W. Robbins, “The Growth of Government in the United States

The thesis underlying this series of posts and reflected in the series’ titles, is that the 2008 financial crisis never really went away. Yes, the stock market has recovered and gone on to hit new highs. Yes, we don’t see massive layoffs taking place or people standing in bread lines. So the visual cues that we expect in a financial crisis are not present.

Further, we see announcements in the press stating how strong the American economy is, and various statistics are brought forth to prove this, perhaps most notably a low unemployment rate.

Donald Trump has been very aggressive at touting the strength of the American economy. The day after the worst stock market plunge of 2019, the President tweeted, “The United States is now, by far, the Biggest, Strongest and Most Powerful Economy in the World, it is not even close! As other falter, we will only get stronger. Consumers are in the best shape ever, plenty of cash. Business Optimism is at an All Time High!”

Now at least some of this is likely true. Objectively speaking, America has the world’s largest economy as measured by Gross Domestic Product (GDP). But there are reasons to doubt some of the President’s other claims.

For example, while the President says that consumers are in the best shape ever, the very next day CNBC ran a story announcing that Americans are more indebted than ever before. This hardly supports the President’s claim that consumers are in the best shape ever.

And if the economy is doing so well, why, according to the Bureau of Labor Statistics, has the labor force participation rate never recovered to the pre-crisis level?

If everything is so great, why has President Trump publicly called for more Quantitative Easing (QE) and interest rate cuts? QE is a radical money printing scheme which was used by the Federal Reserve as an emergency measure to save the financial system in the 2008 crisis. Since QE is an emergency measure that was used to stave off financial collapse, why is it that, on the one hand, President Trump is telling us that the economy is doing great under his leadership, but, on the other hand, is calling for emergency QE as if the financial system were collapsing again?

Another item contradicting the official narrative that everything is awesome with the economy is the calls for interest rate cuts. In the link above, Trump was calling for the Fed to lower interest rates. In a strong economy, demand for money is reflected in rising, not falling, interest rates. If the President is calling for the Fed to lower interest rates, by implication, he is saying the economy is stalling out, not charging ahead.

In the opinion of this writer, the struggles of ordinary Americans to find work and to make ends meet are reflective of a financial system in disarray, not one experiencing rapid growth.

Further, it is my view that the economic problems roiling America stem from the fact the American government and financial elite have refused for more than a decade now to deal honestly with the serious financial crisis facing the United States. At the root of the problem is the Fed, America’s central bank. Central banking is inherently immoral, unchristian, and destructive of the legitimate interests of the great bulk of the American people.

One of the great evils that flows from central banking is another great plague of modern society: Big Government.

In the quote at the top of this page, John Robbins noted that Gordon Clark thought that the growth of government in the United States was the greatest tragedy of the twentieth century. Considering all the evils of that century, Clark’s statement is remarkable indeed.

It is the contention of this author that America is going bankrupt as a result of big government, a great evil which itself is the child of the prior great evil of central banking. Yet there is no serious attempt on the part of elected officials of either party to address this situation.

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Yield Curve Inversion

US Treasury yield curve as of close of business on 3/22/19.  Note the highlighted areas on the chart showing the 1-month Treasury yield is higher than the 10-year Treasury yield.  This abnormal situation is widely considered to be the most accurate predictor of a future recession. (Source, CNBC).

You may have heard that the US stock market got smacked around pretty hard today. The Dow was off 460.19 or 1.77%. The S&P and NASDAQ had it even worse, off 1.90% and 2.50% respectively.

But while the stock market plunge took center stage today, a major secondary story was the continuing inversion of the US Treasury yield curve. Typical was the headline on CNBC which read Bonds are flashing a huge recession signal – here’s what happened to stocks last time it happened.

The article goes on to quote equity strategist Jonathan Golub saying that a yield curve inversion has preceded each recession over the last 50 years. Golub is hardly alone in saying this. If you listen to knowledgeable investors, they consistently will tell you that a yield curve inversion is the most accurate predictor of an oncoming recession. But this raises the question, So just what is a yield curve inversion anyway?

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Financial Crisis_2008_2

The New York Times headline from October 20, 1987, proclaiming the disastrous trading on the New York Stock Exchange the preceding day, an event which has come to be known as Black Monday.

I was talking to my stockbroker today and I said, “Waiter!”

– Jay Leno, October 1987

Jay Leno’s opening joke on the Tonight Show got a huge laugh from the audience, and with good reason.

That may sound a bit odd, but you need to consider the context. You see, his wisecrack came within days of the Monday, October 19, 1987 stock market crash, an event that has come be known as Black Monday.

On that fateful day, the Dow had dropped over 22%, a record one day percentage plunge exceeding even the big one-day percentage plunges that marked the 1929 stock market crash, and people were in the mood for some good comic relief.

To give a sense of what people were thinking at the time, TheStreet ran an article last year marking the 30th anniversary of Black Monday. In his piece, author Michael Brown noted, “Many thought the crash was the start of the next Great Depression and the headlines of the day reflect it.”

As it turned out, no Great Depression ensued. In fact, things got back to normal pretty quickly. Today, Black Monday is considered something of a one-off oddity. An interesting piece of investing trivia to be sure, but not something terribly relevant for today.

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